OPINION: Starbucks position on UK tax has the stench of hypocrisy

Zero tax : Starbucks CEO Howard Schultz is said to be worth £930¿million

Revered British journalist Daniel Johnson on why Starbucks on how the business ethics of Starbucks, Google, Facebook and Amazon contrast starkly with their cool image.

So now we know: the sickly sweet smell that hits you when you go into a branch of Starbucks does not emanate only from their coffee.

The nauseating stink comes all the way from Seattle, where the company is based. It is the stench of corporate hypocrisy.

Starbucks is a global corporation, second only to McDonald’s in the world, with a billion-pound business in Britain.

Yet we are told the company has paid practically no tax here since it began trading 14 years ago. So much for the ‘ethics’ and ‘responsibility’ that it boasts of on its website.

For millions of Britons, Starbucks is synonymous with the steaming cups of frothy latte and cappucino that we carry around everywhere.

The American chain dominates our High Streets, occupying the role in social life once played by Lyons Corner House.

Though Starbucks may sell lousy coffee — try their new Halloween concoction, Pumpkin Spice Latte, if you doubt me — we have only ourselves to blame if we choose to buy it.

Their tea is even worse, mind you. They train their staff to serve tea with the string of the teabag tied around the cup — so that by the time you’ve untied everything and can remove the bag, the tea is too strong.

Still, the 735 Starbucks cafés in the UK do a roaring trade, amounting to £1.2billion in the past three years alone. And the corporation tax bill?

Nothing. Zilch. Not a bean. How do they do it?

Last year, Starbucks posted a loss of £33 million on sales of almost £400 million. Yet John Culver, president of the firm’s international division, boasted to analysts: ‘We are very pleased with the performance in the UK.’

This seems utterly baffling to those of us who are not money men.

Tactic

Yet the pattern of posting losses of its UK operations to avoid paying taxes, while telling the markets that the business is profitable, has been repeated over many years.

What is more, it is perfectly legal. But whether it squares with Starbucks’ claim to the moral high ground is another matter.

Starbucks uses at least three ways of legally avoiding tax. The first is borrowed from other huge U.S. firms such as Google, which charge their own overseas subsidiaries royalties for the right to use its brand and products.

Every time you buy a cup of Starbucks coffee, 6 per cent of the price is paid as a royalty to branches of the U.S. parent company, which may be based in tax havens.

One on every high street: Starbucks enjoys a near-monopoly on coffee shops globally

These royalties would normally count as profit here in Britain and be taxed at 24 per cent by HM Revenue and Customs — but since they go to a foreign branch of Starbucks, the UK taxman can’t get at them.

Similarly, Starbucks funds its UK operations through loans borrowed at high interest rates from another part of the firm. This depresses profits made in Britain — but boosts the global balance sheet.

Another tactic is to use the supply chain to move profits out of Britain. The UK arm has to pay subsidiaries in Holland and Switzerland for buying and roasting its coffee beans.

The roasting operation in Holland — where corporate profits are taxed at 25 per cent — contrived to make a tiny profit of €1.6million on an annual turnover of €154million.

But in Switzerland — where the tax rate is just 5 per cent — the profits are likely to be substantially higher, although under Swiss law Starbucks does not have to disclose them.

It is these and other clever wheezes that combine to make the profits of multi-nationals vanish, as if by magic, as far as the taxman is concerned.

Google Chairman Eric Schmidt: the company which made revenues in the UK of £2.6 billion last year alone paid just £6¿million in tax

Some of the largest companies in the world can thus operate in high-tax countries such as Britain while getting off almost scot-free by basing companies in low tax regimes.

Amazon, Britain’s biggest online retailer, had sales of £3.3billion last year but paid no corporation tax at all. Google, which made revenues in the UK of £2.6billion last year alone, paid just £6million in tax.

On revenues of £175million, Facebook paid just £238,000 in tax.

These are extraordinary statistics — and the addition of Starbucks to the list of tax avoiders is more infuriating still, for unlike the internet giants’ amorphous presence on the internet, the coffee company can be seen operating with queues deep in High Streets and shopping centres everywhere.

Fairness

The political party conference season has just ended with predictable demands that the tax burden on ordinary people should be raised still further: ever-higher tax rates, new taxes on ‘mansions’ (actually typical family homes in London and the South-East), new ‘wealth’ taxes, new impositions of every kind.

Politicians of all parties lecture the public about ‘fairness’ — assuring us that ‘those who can afford it should pay more’.

But none of these politicians seriously proposes to ensure that global corporations should bear their fair share of the tax burden here in Britain — even though in the U.S. Starbucks actually pays a hefty 31 per cent tax on its profits over there.

One may speculate about why British politicians run scared of telling the CEOs of these firms to pay up. What is certain is that their motives have little to do with a principled belief in the free market. Nor do the chief executives themselves give a damn for free and fair competition.

In his seminal treatise The Wealth of Nations, the 18th-century political economist Adam Smith had no time for such corporate bigwigs: ‘People of the same trade seldom meet together, even for merriment and diversion,’ he wrote, ‘but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.’

Starbucks often enjoys a near-monopoly, and it charges eye-watering prices for the privilege of maintaining its condescending attitude to its customers.

Whether it is ethical sourcing or recycling, Fairtrade or diversity, there are few ways of manipulating our guilt-ridden consciences that the men in suits from Seattle do not try to exploit.

Even Peter Mandelson lost his temper with Starbucks CEO Howard Schultz

The global giant has successfully co-opted charity bigwigs to boost its image. On the Starbucks website, Harriet Lamb, chief executive of the Fairtrade Foundation, simpers: ‘It’s hard to pass a Starbucks without stopping to grab a cup of delicious Fairtrade coffee.’

Actually, Ms Lamb, I find it quite easy. Yet this vastly wealthy, insufferably smug corporation, which wields so much power that British politicians do not dare to stand up to it, goes to inordinate lengths to shield its profits from paying a reasonable rate of tax, as almost every one of its customers has to do.

Such hypocrisy almost defies belief. No wonder the worm occasionally turns. Three years ago, Peter Mandelson — then President of the Board of Trade — lost his temper with the CEO of Starbucks, Howard Schultz, who had just been criticising the British economy on U.S. TV.

Greed

‘Why should I have this guy running down the country?’ Lord Mandelson was reported as saying at a drinks party. ‘Who the f*** is he?’

Who indeed? The very same Mr Schultz had recently claimed that the UK business was so successful that he planned to apply the lessons learned from his Starbucks outlets here in the U.S.

Today, Mr Schultz’s personal net worth is said by Forbes to be $1.5 billion (£930 million). Not bad for the chief executive of a loss-making business.It is true Starbucks creates a lot of jobs here.

It contributes to the Exchequer through national insurance, business rates and VAT.

But that cannot excuse Starbucks from the charge of greed and hypocrisy. No one objects to them making a profit, as long as their firm pays its taxes like the rest of us. But it doesn’t.

Maybe the Prime Minister should wake up and smell the coffee.

Daniel Johnson is the founding editor of Standpoint magazine, a former Comment Editor of The Times and a former Associate Editor of the Daily Telegraph.